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gadgetmind

jamesd wrote: »

Remember, the pair has more money than the total invested in all retail funds in each other investment group other than the top two

But we also need to remember that all of these funds form the market. For every winner, there is a loser, in fact more than one as the managers' fees have to come from somewhere.

With active investment, everyone *cannot* be a winner - it's mathematically impossible.

I could as well, perhaps starting with Fidelity Special Situations before and after it changed managers.

For every example, there are numerous counter-examples. "Hot hands" does not survive statistical scrutiny.

It wasn't the same fund so it got none of my money. Zero track record in the particular area concerned so it was a speculative punt IMO.

Some of Bolton's statements on the subject show a naivety that IMO would have caused him serious problems in business, so it's a good job he chose investing!

jamesd

gadgetmind wrote: »

But we also need to remember that all of these funds form the market. For every winner, there is a loser, in fact more than one as the managers' fees have to come from somewhere.

Agreed, well in money balance, if big funds end up being losers the losing fund count might be lower than the winning fund count.

gadgetmind wrote: »

With active investment, everyone *cannot* be a winner - it's mathematically impossible.

If all funds were active I'd agree. But there are passive funds as well and those can be the net losers. Or net winners. The passive fund vulnerabilities include having to buy and sell when shares move into and out of the indexes, creating an opportunity for active managers to exploit.

But I do agree with your general view that there are lots of losers - with high fees and sub-standard performance - in the active fund market. And the passive market as well, it's not an active only phenomenon. 1% for a FTSE tracker, for example.

gadgetmind wrote: »

For every example, there are numerous counter-examples. "Hot hands" does not survive statistical scrutiny.

On the contrary. It's the statistics and the zero sum nature of the game that proves that active management must generate greater returns in some cases. The losers have to be matched by winners. We agree that there are lots of losers but that money doesn't vanish and it can't end up in the trackers because those add costs but no more than market performance. In the US the outperformance of the active funds after fees is on average taken by taxes, notably the CGT handling. Though that's on average and doesn't mean that some funds don't make a greater excess than the tax cost.

gadgetmind wrote: »

Some of Bolton's statements on the subject show a naivety that IMO would have caused him serious problems in business, so it's a good job he chose investing!

Well, such things as being surprised by false claims in annual reports were less than inspiring. Or outright falsehoods in production figures and such. He seems to have been caught out in part by the less developed nature of the market in which he switched to investing. Whether he's made appropriate and sufficient adjustments will be interesting to see.

gadgetmind

jamesd wrote: »

The passive fund vulnerabilities include having to buy and sell when shares move into and out of the indexes, creating an opportunity for active managers to exploit.

The effect of that on passive funds has been monitored and modeled. Sadly, I don't recall the exact figure, but it's the same as a teeny fraction of a percent added to the TER.

But I do agree with your general view that there are lots of losers - with high fees and sub-standard performance - in the active fund market. And the passive market as well, it's not an active only phenomenon. 1% for a FTSE tracker, for example.

However, avoiding high-fee trackers is easy, whereas finding an active fund that will perform well in the future is *very* difficult.

Well, such things as being surprised by false claims in annual reports were less than inspiring. Or outright falsehoods in production figures and such. He seems to have been caught out in part by the less developed nature of the market in which he switched to investing.

Anyone in business who doesn't understand the meaning and importance of "due diligence" is going to take a serious kicking.

jamesd

The effect on the trackers isn't key. It's the effect on the active funds that can be significantly smaller, with correspondingly magnified effect.

For both active and passive funds the first step is the same and easy: eliminate the consistent under-performers. That immediately increases the expected returns for both forms, whether the ongoing selection is then done with a pin or more examination.